Choe, B.-H., Climate Finance under Limited Commitment and Renegotiations: A Dynamic Contract Approach, Journal of Risk and Financial Management (2026)
First-best Benchmark
 (a) Climate cost \(C_{FB}(G)\) |
 (b) Dynamics of GHG stock |
 (c) Adaptation and mitigation funding levels |
 (d) Adaptation and mitigation funding shares |
Figure 1. First-best benchmarks. Author’s own elaboration.
Second-best Simulation
 (a) Difference in climate cost, \(C(w_t,G_t)-C_{FB}(G_t)\) |
 (b) Difference in GHG stock, \(G_{SB,t}-G_{FB,t}\) |
 (c) Promised contribution value, \(w_t\) |
 (d) Total funding, \(I_t\) |
 (e) Adaptation funding, \(a_t\) |
 (f) Mitigation funding, \(m_t\) |
 (g) Adaptation share, \(a_t/I_t\) |
 (h) Mitigation share, \(m_t/I_t\) |
Figure 2. Comparison of dynamics under the first-best and the second-best (SB) contract for \(\rho\in\{0.80, 0.85, 0.90, 0.95, 1.00\}\), with initial total funding set to \(8\%\) of the first-best level in 2015. Author’s own elaboration.